\’Moral Hazard\’ in bailout loans, be it for Citibank by the U.S. taxpayers or Argentina by the IMF, is a controversial issue, re-surfaced recently as the IMF agreed to a rescue package for Greece together with Eurozone countries. Reading through articles on this matter, I came across this short article by Kenneth Rogoff in which he does not think moral hazard is a big issue when it comes to IMF loans and backs that up with back-of-the-envelope calculations based on previous empirical research. You can access the article \”Moral Hazard in IMF Loans How Big a Concern?

A). \’Moral Hazard\’ in bailout loans, be it for Citibank by the U.S. taxpayers or Argentina by the IMF, is a controversial issue, re-surfaced recently as the IMF agreed to a rescue package for Greece together with Eurozone countries. Reading through articles on this matter, I came across this short article by Kenneth Rogoff in which he does not think moral hazard is a big issue when it comes to IMF loans and backs that up with back-of-the-envelope calculations based on previous empirical research. You can access the article \”Moral Hazard in IMF Loans How Big a Concern? at:

http://www.imf.org/external/pubs/ft/fandd/2002/09/rogoff.htm

B). How to resolve this dilemma? World Bank prescriptions to raise ticket prices and end govt. subsidy to CSTC didnt work in the face of stringent, violent public protests and politicians love of winning elections. And the situation is still pretty much the same as I saw in my visit last year except that now the middle classes shun city buses altogether, relying on alternate private arrangements including personal cars.
Private sector/public sector, big government/small government concerns are not exclusive to developing countries. What is different-I believe-is the controversy over the prescriptions or conditionalities of outside agencies like the World Bank or the IMF, and, most importantly, the vital effect things like a 20% increase in water rate or in bus ticket can have on the daily life of ordinary people. So, if the government increases, say, gasoline taxes by 20%, citizens of Cleveland wait for their turn at political participation during the next election, but the citizens of Calcutta or Cochabamba resort to immediate political participation on their streets and plazas….Comments?

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